China Iron Ore Demand Lifts Spot Freight Market of Large Bulker

Spot market price of ocean freight of large bulkers recovered the high level in September 2008 before Lehman Shock due to strong demand for iron ore from China. However, some market interests concern the freight market could be overheated when worldwide demand is much lower than last year except for China. The supply balance is expected to ease when Chinese iron ore import is much higher than steel production and large bulker supply increases in and after mid-2009.

The freight reached US$ 86,000 level per day for cape size bulker in average for major 4 routes, which doubled in a month, according to Japanese sources. The freight exceeded US$ 100,000 for Atlantic-Pacific ocean route. The iron ore freight is US$ 46 per tonne for Brazil ore and US$ 18 for Australian ore to Far East. The freight is high for the recession while the level is much lower than US$ 100 for Brazil ore and US$ 50 for Australia ore in the peak in 2008.

Chinese iron ore import renewed monthly high for 3 months in a row though April when mid- and small- Chinese steel makers expand the import. Iron ore majors try to secure the bulkers in spot market when the spot sales with CIF price increase while the sales decrease for long term buyers at FOB price. The spot bulker market is tight due to higher demand along with congestion at Chinese ports.

The higher spot freight market could have no impact on Japanese integrated steel makers when the steel makers can transport the raw materials by long-term chartered bulkers under very low level operation.

Many new cape size bulkers are expected to start operation from mid-2009. The increase is expected to net 50 or more against existing around 800 of cape size bulkers if some old bulkers are scrapped. The increase could be net 100 or more in 2010 when 300 of new cape size bulkers are planned to start operation.